Corinth Investors Holdings, LLC v. Evanston Insurance Company, et al

Filing 50

ORDER ADOPTING REPORT AND RECOMMENDATION OF THE UNITED STATES MAGISTGRATE JUDGE for 30 Report and Recommendations, DENYING 18 Motion for Summary Judgment filed by Homeland Insurance Company of New York, DENYING AS MOOT 33 Motion to Conti nue filed by Homeland Insurance Company of New York, GRANTED 16 Motion to Strike, filed by Homeland Insurance Company of New York, GRANTING 9 Motion for Partial Summary Judgment, filed by Corinth Investors Holdings LLC. Signed by Judge Ron Clark on 8/24/2014. (baf, )

**NOT FOR PRINTED PUBLICATION**
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
SHERMAN DIVISION
CORINTH INVESTORS HOLDINGS, LLC
D/B/A ATRIUM MEDICAL CENTER,

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Plaintiff,
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v.
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EVANSTON INSURANCE COMPANY AND §
HOMELAND INSURANCE COMPANY OF §
NEW YORK,
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Defendants.
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CASE NO. 4:13-CV-682

ORDER ADOPTING REPORT AND RECOMMENDATION
OF UNITED STATES MAGISTRATE JUDGE
On June 9, 2014, the United States Magistrate Judge issued his report and
recommendation [Doc. #30], this matter having been referred to the United States Magistrate
Judge pursuant to 28 U.S.C. § 636. The Magistrate Judge recommended that Plaintiff’s Motion
for Partial Summary Judgment [Doc. #9] be granted, Defendant Homeland Insurance Company
of New York’s Motion to Strike Plaintiff’s Summary Judgment Evidence or In the Alternative
Motion for Continuance Pursuant to FRCP 56(f) [Doc. #16] be granted, and Defendant
Homeland Insurance Company of New York’s Motion for Summary Judgment [Doc. #18] be
denied.
This case involves a dispute over whether Homeland Insurance Company of New York
(“HIC”) has a duty to defend and indemnify Corinth Investors Holdings, LLC d/b/a Atrium
Medical Center (“Atrium”) in an underlying medical malpractice lawsuit filed by Robert and
Jackie Garrison under the terms of a claims-made Healthcare Organizations and Providers
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Professional Liability Policy, effective January 1, 2013 through January 1, 2014 (the “Policy”).
In considering the cross-motions for summary judgment on the duty to defend, the Magistrate
Judge concluded that HIC has a duty to defend Atrium in the underlying litigation.
On June 24, 2014, HIC filed its objections to the report and recommendation of the
Magistrate Judge [Doc. #34]. On July 7, 2014, Atrium filed its response [Doc. #36].
HIC’s first objection is that the Magistrate Judge should have considered extrinsic
evidence to determine HIC’s duty to defend. An insurer’s duty to defend is determined by the
application of the “eight-corners rule.” GuideOne Elite Ins. Co. v. Fielder Road Baptist Church,
197 S.W.3d 305, 308 (Tex. 2006). “The rule takes its name from the fact that only two
documents are ordinarily relevant to the determination of the duty to defend: the policy and the
pleadings of the third-party claimant.” Id. (citing King v. Dallas Fire Ins. Co., 85 S.W.3d 185,
187 (Tex. 2002)). However, HIC relies on the Texas Supreme Court’s guidance in GuideOne, in
which the Texas Supreme Court recognized that if it was to recognize an exception to the strict
eight-corners rule, it would be in limited circumstances, specifically “when it is initially
impossible to discern whether coverage is potentially implicated and when the extrinsic evidence
goes solely to a fundamental issue of coverage which does not overlap with the merits of or
engage the truth or falsity of any facts alleged in the underlying case.” Indian Harbor Ins. Co. v.
KB Lone Star, Inc., No. H-11-CV-1846, 2012 WL 3866858, at *5 (S.D. Tex. Sept. 5, 2012)
(citing GuideOne, 197 S.W.3d at 308-09). HIC asserts that because its policy is a claims-made
policy, whether timely notice was received by the insured is a fundamental issue of coverage.
HIC argues that this issue is likely to be irrelevant to the underlying lawsuit, and likely to be
absent from the pleadings. Thus, HIC contends that the Garrisons had no need to plead when
notice was received by Atrium; they only had to plead when notice was sent. HIC argues that

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this case is the poster child for the GuideOne exception, and that the Magistrate Judge should
have considered extrinsic evidence.
The Magistrate Judge carefully considered the law applicable to an insurer’s duty to
defend, and the parties do not dispute that the Magistrate Judge correctly applied the eightcorners rule to this case. The Fifth Circuit has recognized that “Texas strictly follows the ‘eightcorners rule,’ meaning the duty to defend may only be determined by the facts alleged in the
petition and the coverage provided in the policy.” Gilbane Bldg. Co. v. Admiral Ins. Co., 664
F.3d 589, 596 (5th Cir. 2011) (emphasis added). “Courts may not… (1) read facts into the
pleadings, (2) look outside the pleadings, or (3) imagine factual scenarios which might trigger
coverage.” Gore Design Completions, Ltd. v. Hartford Fire Ins. Co., 538 F.3d 365, 369 (5th Cir.
2008) (citing Guar. Nat’l Ins. Co. v. Azrock Indus., 211 F.3d 239, 243 (5th Cir. 2000)).
However, the Magistrate Judge also acknowledged that some courts have recognized an
exception to this rule, and described the GuideOne exception argued by HIC [Doc. #30 at 14-15].
The Magistrate Judge concluded, after acknowledging and considering the exception, that
extrinsic evidence should not be considered because “the Court is able to determine from an
eight-corners analysis of the underlying petition and Policy that the claim is at least potentially
covered, and any doubts regarding the duty to defend should be construed in favor of the
insured.” Id. at 15. Thus, there was no need for the Magistrate Judge to go on to consider the
second prong of the exception, which is whether the coverage issues and merits of the underlying
case overlapped, and he did not make any findings in this regard.
Further, it would be inappropriate for the court to use extrinsic evidence to negate
coverage that has already been established by the application of the eight-corners rule.
If the pleading alleges insufficient facts [sic] bring the claim within the scope of
coverage, then extrinsic facts are appropriate. For example, a court may examine
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extrinsic evidence to determine whether the party seeking a defense is an insured
under the policy when the pleading does not contain sufficient allegations to allow
the court to make that determination… If, however, the allegations in the
underlying pleading bring the claim within the scope of coverage, it is
inappropriate to consider extrinsic evidence to decide if an exclusion
applies…(“[T]here is no case in Texas or this Circuit that has ever applied any
exception to allow extrinsic evidence where the insurer submits the petition in the
underlying suit that does not allege facts sufficient to enable the court to
determine whether certain exclusions apply, as distinct from and after the initial
inquiry to determine whether coverage is potentially implicated.”)… Under no
circumstances may a court consider extrinsic evidence that contradicts the
allegations contained in a pleading against the insured.
Liberty Surplus Ins. Corp. v. Allied Waste Sys., Inc., 758 F. Supp. 2d 414, 427 (S.D. Tex. 2010)
(internal citations omitted).
This court agrees that if the court were to apply this exception to the eight-corners rule,
extrinsic evidence would only be admissible if it were impossible to make a coverage
determination after first applying the eight-corners rule. Because in this case it is possible to
make a coverage determination within the boundaries of the eight-corners rule, extrinsic
evidence is not admissible. HIC’s objection is overruled.
HIC next objects to the Magistrate Judge’s failure to find that the summary judgment
evidence provided by HIC conclusively proves the claim was first made before the policy period.
However, because the court has determined that extrinsic evidence would not be admissible to
determine coverage in this case, it is not necessary to consider this objection and it is overruled.1
The court has conducted a de novo review of the objections in relation to the pleadings
and applicable law. After careful consideration, the court concludes HIC’s objections are
without merit and are, therefore, overruled.

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If the court were to consider the objection, the court agrees with Atrium that a statement made “on information and
belief” in a pleading does not constitute a binding judicial admission. The court further agrees that it would not be
appropriate for the court to infer when HIC received the notice based on consideration of extrinsic evidence. It
would be appropriate for the court to make such an inference based upon the allegations in the underlying pleadings,
but there are no allegations in this case from which the court may make the inference suggested by HIC. So for
these additional reasons, HIC’s objection is overruled.

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HIC also moves for continuance of the motion for summary judgment and motion for
leave to conduct additional discovery and supplement the summary judgment record. However,
its argument in this motion is based solely on this court finding that extrinsic evidence should be
considered, but finding that HIC’s evidence is somehow deficient to prove or raise a fact issue as
to when Atrium first received notice of the Garrison claim. Instead, the court agrees with the
Magistrate Judge that it would not be appropriate to consider extrinsic evidence in this case.
Thus, the court finds this motion is denied as moot.
It is therefore ORDERED that the Report and Recommendation of United States
Magistrate Judge [Doc. #30] is adopted. Accordingly, Plaintiff’s Motion for Partial Summary
Judgment [Doc. #9] is GRANTED, Defendant Homeland Insurance Company of New York’s
Motion to Strike Plaintiff’s Summary Judgment Evidence or In the Alternative Motion for
Continuance Pursuant to FRCP 56(f) [Doc. #16] is GRANTED, and Defendant Homeland
Insurance Company of New York’s Motion for Summary Judgment [Doc. #18] is DENIED.
It is further ORDERED that Defendant Homeland Insurance Company of New York’s
Motion for Continuance of Motion for Summary Judgment and Motion for Leave to Supplement
Summary Judgment Record [Doc. #33] is DENIED as moot.

So ordered and signed on

Aug 24, 2014

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